Renting by the Room

[Aaron Gordon]

Hi Everyone,

Looking for advice and/or experience with successes in offering furnished medium term room rentals, particularly those out of state. I'm really interested in class B/C properties in East Coast metro areas, Philly in particular but still researching. My goal is to maximize short-medium term cashflow by focusing on a single area and rolling over cashflow/personal funds into more units with the same by-the-room strategy. I work with housing disadvantaged populations, so I understand the unique and increased risks that are already present in class C neighborhoods and are compounded by renting rooms and am comfortable adopting this strategy to maximize monthly cash returns. I very much so understand the value of a knowledgable RE agent and gaining in-person insights about the neighborhoods. My specific questions for those who have had or seen success with a similar model are:

1. How did/are you finding good tenants? Traditional places like Zillow/Apartments.com/etc, boutique platforms like PadSplit/etc, or through a RE agent? (Likely more niche, but I'm also open to partnering with reputable CCBHCs or other mental health agencies to rent a unit specifically with barriers to housing).

2. Month-to-Month or Week-to-Week? I understand each has their pros/cons but interested in hearing your experience.

3. How much do you manage yourself? The things you outsource, is it because of time/expertise constraints or for ease of mind/management?

4. General recommendations/positive experiences. Either locations, RE Agents, Lenders, or combination of all 3! Happy to hear about other's success even if it doesn't match the areas I'm searching in currently (Northeast corridor, South, Midwest).

Also, if you don't have anything positive to add, feel free to spout your 2 cents about horror experiences or stories. Not afraid of getting holes blown through my plans, and very happy to have as much information at my disposal to make great decisions!

[Clayton Silva]

Let me approach this from the lending perspective.  Rent by the room is a great strategy for cash flow (I house hacked my first house and did exactly this).  From a lending perspective, if you are trying to grow and scale and do it smoothly rent by the room is often a nightmare when you want to get financing.  The way we typically recommend overcoming this hurdle is to have 1 tenant responsible for the entire lease and then that tenant can sublet to the other tenants.  Obviously this is more difficult from a logistics perspective, but many NonQM and other lending products are going to flat out deny the rent by the room unless structured this way.  You will want to have it set up with one singular deposit and typically one lease rather than a bunch of individual leases to multiple tenants.  I would HIGHLY recommend a competent PM in the area that is familiar with this and can set up the lease to have one tenant and then all tenants can pay the PM who can make the single payment to you and your account.  Not to scare you away, just help overcome some future hurdles I see time and again.